Thursday, December 26, 2024

The strange case of recalculating past GDP with new weights

Friday, November 30, 2018, 18:28
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By Ashok V DesaiThe NDA government has been a pioneer a number of times. Demonetisation and the goods and services tax (GST) are only its bestknown antics. Now it has taken the lead in politicising national income statistics.Normally, the Central Statistical Office (CSO) issues a press note every quarter, giving figures of national income and its components for the previous quarter. The figures do not make headlines. The common man has better things to get excited about. Growth has got stuck around 6-7% in recent years. It varies so little that it has become a bore. 6-7% growth implies an increase in the average man’s productivity and income of 4-5%. The common man must wonder where this lucky ‘average man’ is to be found.Governing castes have their rituals. The growth rate, the common man would think, is one of them. The Planning Commission found it difficult enough to get into the news, however much its deputy chairman screamed. NITI Aayog is even more obscure. Its vice-chairman had to do something even more odd to make headlines.And he succeeded beyond his worst expectations. Why? For three reasons. First, news about GDP statistics is issued in press notes or reports by the CSO. This time, it was releasedin a PowerPoint presentation, which is far less detailed and more sensational than a CSO release.The presentation was made in a press conference given jointly by NITI Aayog vice-chairman Rajiv Kumar, and Pravin Srivastava, deputy director general of CSO, in Pahle India Foundation, a non-government organisation Kumar had founded in the days before he joined the present government. GDP figures are entirely in the province of the CSO. It has never before associated a minister with their release.Second, they are always initially released in a detailed, boring CSO report. This time there has been none. The last CSO GDP report, National Accounts Statistics 2018, was released in September. It does not give the figures on which Kumar’s presentation is based.Time Wounds All HealsThird, it gives a ‘back series’. This strange, novel term means that figures for past years have been recalculated with new, more recent weights. As far as I know, this has never been done before. Figures for past years remain as they were, calculated with past weights. When longer series are required, they are calculated by splicing old series with new ones. In theory, national income in the 1800s could be recalculated using the weights of 2011-12. But it would make no sense because many goods and services of today did not exist 200 years ago, and many that were important then are no longer so.Finally, the figures given by this ‘back series’ for 2004-05 to 2011-12 — a period when the Congress-led UPA ruled at the Centre — have come down. The old series gave an average GDP growth rate of 8.2-8.5%, the highest in recorded history. Whereas, the back series gives a growth rate for those years of 6.7-6.9%. That has led Congressmen to allege that the figures have been manipulated. Their allegations have led Rajiv Kumar to take umbrage. He has treated their comments as an insult to the CSO and has taken up former Congress finance minister P Chidambaram’s challenge to have a public debate.The common man can do nothing to change the course of events. He can only enjoy or suffer the show, which is typical of his country’s acerbic politics. But if judgement had to be passed, I would say that GDP statistics are there for anyone, including a politician, to use in any way he wants.I find nothing wrong in Rajiv Kumar’s using them. But Srivastava has erred on at least three grounds. First, the CSO has not issued a press note giving the figures Kumar has used. Second, he had no business to take a joint press conference with Kumar. He should resolutely stay away from politicians.And, finally, recalculating past figures with recent weights is not wrong, but it is unusual. When the CSO introduces new weights, it recalculates the previous five years’ figures, but goes no further. Srivastava should give some explanation, preferably in a detailed note, of why the CSO has done so this time.That note should explain, among other things, why rebasing led to such a significant fall in the growth figures for 2004-05 to 2011-12. It is obviously because some new activities have grown very rapidly in recent years. Kumar gave a long list of the modifications. Some of them are so serious that even a PhD thesis might be insufficient to justify them.Fit To a TeaFor instance, the banking department of the Reserve Bank of India is now treated as a market enterprise. I cannot imagine what this business produces. I can understand the inclusion of stockbroking in GDP, but I still cannot see what stock exchanges produce: they are just markets, like any other.But one never knows. Maybe the government has created not only new GDP statistics, it has even invented anew economics, turning old economists into chaiwallas. Anything is possible in a country that manufactured airplanes three millennia ago.

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